England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES (ChD)
PROPERTY TRUSTS AND PROBATE LIST

		The High Court of Court of Justice Rolls Building Fetter Lane London EC4A 1NL
		2 February 2018

Mr. Justice Marcus Smith:

A. INTRODUCTION

1. By an indenture dated 6 March 1925 (the "Indenture"), Charles Harrison settled certain property (the "Fund") on his daughter, Jeannette Harrison, on the terms and trusts set out in the Indenture. In order to avoid having to set out large portions of the Indenture in this Judgment, a copy of the Indenture is appended hereto.
2. The Indenture was varied by a scheme (the "Scheme") approved by Mr. Justice Vaisey on 9 December 1953. Again, for ease of reference, a copy of the Scheme is appended to this Judgment.
3. I shall refer to the Indenture as varied by the Scheme as the "Settlement".
4. At all material times, the trustee of the Settlement was the public trustee. In this Part 8 claim, the public trustee now applies for directions under CPR 64.2(a) for the court to determine a question arising out of the operation of the Settlement in relation to a share of the Fund held by David Harrison, who died without leaving children.
5. Jeannette Harrison herself died leaving no children. She was an only child. The settlor, her father, had a brother, referred to in the family tree before me as "N/K Harrison". N/K Harrison had 13 children, one of whom was James Harrison.
6. James Harrison had two children, Jeffery Harrison and David Harrison. David Harrison, as I have noted, died without leaving any children. Jeffery Harrison is dead, but has two living children, Guy Harrison (the First Defendant) and Judy Mackay (the Second Defendant).
7. The question that the public trustee seeks to have determined is whether, according to the terms of the Settlement, the share of David Harrison accrues to the share that was held for his brother, Jeffery Harrison, and so is payable to his (Jeffery's) children, the First and Second Defendants or whether David's share accrues to the shares of N/K Harrison's 13 children. I shall refer to David's share as the "Disputed Share".
8. The persons comprising this latter group – described before me as the "wider class" – comprises some 31 persons, including the First and Second Defendants. Of the wider class:

i) Obviously, the First and Second Defendants do not accept – indeed, they oppose – the claims advanced by the wider class.

ii) Of the remaining 29 members of the wider class, some provision was made as to their representation in an order of Deputy Master Cousins dated 27 July 2017. Essentially:

a) The persons listed in Schedule 1 to the order (the "non-opposing beneficiaries") do not oppose the Disputed Share passing to the First and Second Defendants. There is no reason for these five non-opposing beneficiaries to be joined to the proceedings.

b) The first 15 persons listed in Schedule 2 Part A to the order consent to the sixteenth person there listed (the Third Defendant) representing them; to her doing so without herself being legally represented; through her husband, Dr. Harrison-Mills. By paragraph 11 of the order, the Third Defendant was appointed under CPR 19.7(2)(d)(ii) to represent these 15 persons.

c) That leaves 8 persons of the wider class who have neither agreed to the passing of the Disputed Share to the First and Second Defendants nor agreed to being represented by the Third Defendant. Plainly, these persons need to be bound by any order consequential upon this judgment. Accordingly, at the outset of the hearing before me, I ordered that the Third Defendant be appointed under CPR 19.7(2)(d)(ii) to represent these persons also.

9. This judgment considers the following points in the following order. First, Section B seeks to define precisely the nature of the Disputed Share. Secondly, Section C sets out the approach I take to the construction of the Settlement. In particular, I explain why, in construing the Settlement, I consider that it would – in this case – be wrong as a matter of law to consider anything other than the terms of the two instruments comprising the Settlement, namely the Indenture and the Scheme. Thirdly, and finally, in Section D, I set out my construction of the Settlement and my determination as to how the Disputed Share accrues.

B. THE NATURE OF THE DISPUTED SHARE

10. The Scheme defines three funds (clauses 1(6), (7) and (8) of the Scheme):

i) The "Life Tenant's Fund". The "Life Tenant" is defined as Jeannette Harrison (clause 1(2) of the Scheme). The assets comprising the Life Tenant's Fund are set out in Part I of the First Schedule to the Scheme.

ii) The "Appointed Fund". The assets comprising the Appointed Fund are set out in Part II of the First Schedule to the Scheme.

iii) The "Released Fund". The assets comprising the Released Fund are set out in the Second Schedule to the Scheme.

11. The Disputed Share forms part of the Appointed Fund. By clause 2 of the Scheme, the Appointed Fund was released from a power of appointment conferred on Jeannette Harrison by clause 8 of the Indenture.
12. By clause 3 of the Scheme, the assets comprising the Appointed Fund were to be divided into 25 equal parts. Five of these parts – that is, the Disputed Share – were allocated to David Harrison.
13. The Disputed Share was to be held on trust. The trusts on which the Disputed Share was to be held are defined in two ways:

i) First, the opening words of clause 3 of the Scheme stipulate that the interest of David Harrison (and, of course, those other persons listed in clause 3) arises as if Jeannette Harrison had by her will appointed that the Appointed Fund be held on trust. This is a reference to Jeannette Harrison's power of appointment under clause 18(ii) of the Indenture. It will be necessary to revert to this provision (and to related provisions under the Settlement) in due course.

ii) Secondly, and reinforcing the opening words of clause 3, clause 3 ends with the following proviso:

"PROVIDED ALWAYS that the said share shall not vest absolutely in the said appointees but shall be held by the Trustees upon the trusts and with and subject to the powers and provisions affecting the same under clause 18 of the [Indenture]."

C. THE APPROACH TO CONSTRUCTION

14. In his submissions to me, Dr. Harrison-Mills made a number of points arising not out of the terms of the two instruments comprising the Settlement, but relating to what (as he said) must have been the intention of the settlor; what had occurred on previous occasions when a person interested in the Settlement had died; and how property had been treated under other trusts established by the settlor. He also referred to notions of legitimate expectation.
15. In addition, Dr. Harrison-Mills criticised the manner in which the issues regarding the Disputed Share had been framed in the course of this dispute and the manner in which the public trustee had brought this dispute before the court.
16. To deal with the latter points (set out in paragraph 15 above) first, it seems to me that the manner in which the issues have been framed by the parties during the course of this dispute is an irrelevance, and I am not prepared to parse after-the-event communications debating the true construction of the Indenture and the Scheme. These communications are simply irrelevant to the question before me. It is my duty to consider the true construction of the Indenture and the Scheme, not what has subsequently been said about these instruments by the parties during the course of the litigation.
17. Equally, I consider that points relating to the manner in which this dispute has been brought before the court are nothing to the point. It bears saying, however, that I consider that (whilst the matter is entirely irrelevant to construction of the Settlement) the public trustee has behaved with complete propriety and in accordance with its obligations as trustee in the way in which it has handled the dispute between the various parties asserting an interest in the Disputed Share.
18. The approach I must take to construction is set out in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896 and Arnold v. Britton [2015] UKSC 36. I accept that the approach laid down in these decisions is as applicable to unilateral instruments, such as the Indenture, as it is to bilateral instruments like contracts and the Scheme.
19. However, it does seem to me that some care needs to be taken when considering the external context (i.e. the so-called "factual matrix"). In cases concerning contracts, it is well-accepted that such material – in order to be admissible – must be reasonably available to all of the parties to the contract: see McMeel, McMeel on the Construction of Contracts, 3^rd ed. (2017) at paragraph 5.51. Where the instrument is not a contract, the range of admissible material may be different: see (in relation to public instruments) British Telecommunications plc v. Office of Communications (Partial Private Circuits) [2012] CAT 5 at [201]-[202]; Christianuyi Limited v. The Commissioners for Her Majesty's Revenue and Customs [2018] UKUT 0010 (TCC) at [25(4)(b)].
20. In the case of a unilateral instrument, it is difficult to see what factual matrix material can be relevant, given that the instrument – in this case, the Indenture – was made by the settlor alone and the Scheme was approved by Mr. Justice Vaisey. The trustee and future beneficiaries are, as it seems to me, entitled to rely on the wording of the instrument, unaffected by materials that may (or may not) have weighed upon the mind of the settlor.
21. Accordingly, I am not persuaded that there is a relevant external context in the present case: this is a case where I must construe, without reference to external material, the Indenture and the Scheme.

D. THE TRUE CONSTRUCTION OF THE SETTLEMENT

22. Clause 18 of the Indenture applies where Jeannette Harrison died without issue. Two different powers of appointment (both testamentary) are provided for:

i) The first, under clause 18(i), arises where Jeannette Harrison predeceases the settlor.

ii) The second, under clause 18(ii), arises where Jeannette Harrison survives the settlor.

23. At the time of the Scheme, Jeannette Harrison was without issue, but still living. The settlor had pre-deceased her. The Scheme, by way of a deeming provision, deems that the allocation of shares to the Appointed Fund shall be as if Jeannette Harrison had by her will made these appointments. It follows that the allocation of shares to the Appointed Fund was intended to have been made under clause 18(ii) of the Indenture and – apart from deeming that the allocation had been made as if by the will of Jeannette Harrison – the provisions of clause 18 remain effective as originally drafted in the Indenture.
24. The power of appointment contained in clause 18(ii) is limited to appointments in favour of the nephews and nieces of the settlor (i.e. the cousins of Jeannette Harrison) and/or their issue. As regards this power:

i) Within this class, the intention was that one of the nephews/cousins – Ralph John Harrison – should not benefit. He – but not his issue – is excluded.

ii) Although the power of appointment defines a restricted class of object, within that class, Jeannette Harrison's power of appointment was relatively unfettered: she could exclude persons altogether and/or she could make unequal allocations.

25. The appointments made by the Scheme are consistent with clause 18(ii) of the Indenture.
26. Clause 18(ii) contains two provisos, which I quote:

"(A) No appointment under this power shall have any further or other operation than to determine which of the objects of the power shall be entitled to the Trust Fund and (if more than one) in what shares and

(B) The Trust Fund or the shares thereof (according as the appointment may be) shall be retained by the Trustees upon such trusts and with and subject to such powers and provisions as would for the time being be applicable to a share appropriated by them to the object or objects in question or to the parent of such object or objects under the trusts in default of appointment hereinafter contained."

27. The first proviso – (A) – is a negative one. It makes clear that the power of appointment is just that – a power to identify an object within the class of objects and to allocate all or part of the Fund to that object. The power of appointment does not extend to defining the terms on which the Fund (or part of it) are held for the object.
28. The second proviso – (B) – then defines the trusts which are to apply. These are the trusts that would be applicable in default of appointment. The second proviso does not itself set out the relevant trusts. Neither does any other part of clause 18. It is necessary to look further on in the Indenture. As to this:

i) Clause 19 defines the manner in which the Fund would be shared if no appointment were made. Clause 19 does not specify the terms of such trusts, but merely the beneficiaries in default of appointment. As such, clause 19 is not the provision that supplies the terms of the trusts referenced in proviso (B) of clause 18(ii). It simply identifies the default objects.

ii) It is clause 20 that contains the declaration of trusts:

"The shares so appropriated and the sub-shares thereof and the shares of such sub-shares and the income thereof respectively shall be held by the Trustees upon the same trusts and with and subject to the same powers and provisions as are by and in Clauses 10 to 17 inclusive of these presents declared and contained concerning the original shares sub-shares and shares of sub-shares thereby dealt with as if such clauses were here repeated but giving to the said nephews and nieces of the Settlor (other than the said Ralph John Harrison who shall have no interest in or power over the Trust Fund or any part thereof) such interests and powers in and over their respective shares as are thereby given to the children of Miss Harrison in and over their respective shares and to the children grandchildren and issue of such nephews and nieces (including the children grandchildren or issue of the said Ralph John Harrison by his said wife but excluding all other issue of his) such interests and powers in and over their respective shares sub-shares or shares of such shares as are thereby given to the children grandchildren and issue of the children of Miss Harrison in and over their respective shares sub-shares or shares of sub-shares and making such other verbal alterations as are necessary for giving effect to this clause."

29. Clause 20 is a provision that incorporates earlier clauses of the Indenture – clauses 10 to 17 – by reference, permitting the making of such verbal alterations as are necessary to give effect to the provision.
30. The terms "shares", "sub-shares" and "shares of such sub-shares" – which are used throughout clause 20 – are obviously terms of art. That is to say they clearly bear particular meanings arising out of the Indenture. However, these terms are not defined in clause 20 – nor, indeed, in clauses 18 or 19.
31. The terms are in fact first defined in relation to the primary objects of the Settlement, namely Jeannette Harrison and her issue. The relevant provisions are as follows:

i) It is clear that a "share" describes the interest of a child or of children of Jeannette Harrison's in the Fund: see, in particular, clauses 7(i), 9 and 10 of the Indenture. It is clear that even if Jeannette Harrison had only had one child, that child's interest would properly be defined as a "share": see clause 10.

ii) It is clear that a "sub-share" describes the interest of a grandchild in a share, whose interest arises by way of the operation of clause 12. Thus, where a child of Jeannette Harrison's – holding a share – dies, that particular share is then held on trust for that child's children, each (grand)child holding a sub-share. Again, it is clear that even if there were only one grandchild, that grandchild's interest would properly be called a "sub-share".

iii) "Shares of sub-shares" arise in the circumstances described in clause 14, which makes provision for the substitution of great-grandchildren in certain circumstances.

32. It is quite clear from the wording of clause 20 – and entirely logical considering the scheme of the Indenture as a whole – that the purpose of the provision is to transpose the concepts of "shares" and "sub-shares" from Jeannette Harrison's issue to the issue of N/K Harrison in default of issue by Jeannette Harrison. The transposition in clause 20 is clear:

i) The various nephews and nieces of the Settlor (or cousins of Jeannette Harrison) are to be treated for purposes of the trusts imposed over their interest as if they were children of Jeannette Harrison. The words in clause 20 make this clear ("…but giving to the said nephews and nieces of the Settlor…such interests and powers in and over their respective shares as are thereby given to the children of Miss Harrison in and over their respective shares…"). Thus, to the extent appointed, such a cousin would hold a "share". Had he been appointed, the father of David and Jeffery – James Harrison – would have held a "share" in the Fund.

ii) The next words of clause 20 are as follows:

"…to the children grandchildren and issue of such nephews and nieces (including the children grandchildren or issue of the said Ralph John Harrison by his said wife but excluding all other issue of his) such interests and powers in and over their respective shares sub-shares or shares of sub-shares as are thereby given to the children grandchildren and issue of the children of Miss Harrison in and over their respective shares subshares or shares or sub-shares…." (emphasis added)

It is plain that the issue of these nephews and nieces of the settlor (or cousins of Jeannette Harrison) are to be treated for purposes of the trusts imposed over their interest as if they were the issue of children of Jeannette Harrison. They are thus analogised to the interest of a grandchild as defined in paragraph 31(ii) above. So far as a child of a nephew and niece is concerned, the interest that such an object holds is that of a "sub-share".

33. I hold that, by reason of the various provisions that I have described, the interests of Jeffery and David are that of "sub-shares" within the scheme of the Indenture.
34. It follows that, on the death of David Harrison, without issue, the relevant accruer clause is that contained in clause 16(i) of the Indenture. This means that David's sub-share accrues to that of Jeffery and falls to be distributed to Jeffery's children in the manner contended for.
35. Accordingly, I hold that the public trustee is obliged, according to the terms of the Settlement, to apply the Disputed Share in accordance with clause 16(i) of the Indenture.